ECONOMICS PROJECT

PROJECT TOPIC –

Foreign direct investment in India

SUBMITTED TO -

PROFESSOR RAJESH GAUTAM

SUBMITTED BY -

ABHISHEK SOLANKI

BA.LLB 2ST TRIMESTER

ROLL NO. – 2016 BA.LLB 52

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 PREFACE

My project provides information about foreign direct investment in India. It helps

you to increase your knowledge on FDI. And maximum effort has been taken to
make the project more comprehensive and lucid to understand. Idea behind my
project was to discuss the how much FDI growth. My project cover a variety of
sub topic like history of FDI in India, current status of FDI in India, suggestion for
increase flow of FDI. Project lets you about which top 10 investing country in
India, top 10 sector with highest FDI in India, year wise FDI inflow from 2000 -
2016.

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 ACKNOWLEDGEMENT

I take this opportunity to thank everyone who helped me out in completing my project directly or
indirectly. I show and express a special token of gratitude towards our Economics Teacher,
Professor Rajesh Gautam without whose guidance and support, it would have been pretty
difficult to complete this project. I would also like to thank NLIU’s library, which helped me a
lot in the construction of this project. At the end I would also like to thank my parents for their
endless support and true guidance and my batch mates for their support.

I acknowledge that without their help this project would not have been seen this day.

ABHISHEK SOLANKI

2016 BA.LLB 52

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 CONTENTS
1. Objective of project
2. Foreign investment
3. Types of foreign investment
4. FDI in India
5. FDI flow routes
6. FDI policy framework in India
7. Current status of FDI in India
8. Problems for low flow in India
9. Determinants of FDI in India
10.Need for FDI in India
11.FDI equity inflow in 2016
12.Top 10 investing countries in India
13.Top 10 highest sector in India
14.Year wise FDI inflow from 2000 – 2016
15.Suggestions for increase flow of FDI in India
16.Conclusion
17.Bibliography

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 OBJECTIVE OF THE PROJECT

1. To clearly understand foreign direct investment.

2. To Study the trends of FDI Flow in India during 2000-01 to 2015-16 (up to
September, 2016).
3. To identify the problems relating to low inflow of FDI and to make suitable
suggestions for attracting more FDI inflow to India.

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 RESEARCH METHODOLOGY

 Type of research: - Quantitative & Analytical Research.

 Data: - Data of Manufacturing, Services & Construction, Real estate,

mining sectors etc. from year April 2000 to June 2015 is considered for the
study.

 Data Collection Method: - Secondary data from different web sites &
reports of RBI, reports on FDI.

 Sources of data collection: - The study is based on published sources of

data collected from various sources. The data was extracted from the
following sources.
 Department of Industrial Policy and Promotion (DIPP).
 Economic Survey, Government of India

This research is a descriptive study in nature. The secondary data was collected
from various journals, magazines, and websites particularly from the Department
of Industrial Policy & Promotion, Ministry of Commerce and Industry, India stat
etc. Simple percentages have been used to defect the growth rate of India. Graphs
and tables have also been used where ever required to depict statistical data of FDI
during the study period. The time period of the study has been taken from the April
2000 to June 2015.

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 Foreign Investment
Foreign investment involves capital flows from one country to another, granting extensive
ownership stakes in domestic companies and assets. Foreign investment denotes that foreigners
have an active role in management as a part of their investment. A modern trend leans toward
globalization, where multinational firms have investments in a variety of countries.

Types of foreign investment

 Foreign direct investment - Foreign direct investments (FDIs) are the physical
investments and purchases made by a company in a foreign country, typically by opening
plants and buying buildings, machines, factories and other equipment in the foreign
country. These types of investments find a far greater deal of favor, as they are generally
considered long-term investments and help bolster the foreign country’s economy.
 Foreign portfolio investment - Foreign indirect investments or foreign portfolio
investment involve corporations, financial institutions and private investors buying stakes
or positions in foreign companies that trade on a foreign stock exchange. In general, this
form of foreign investment is less favorable, as the domestic company can easily sell off
their investment very quickly, sometimes within days of the purchase. Indirect
investments include not only equity instruments such as stocks, but also debt instruments
such as bonds.
 Commercial loan - Commercial loans are typically in the form of bank loans that are
issued by a domestic bank to businesses in foreign countries or the governments of those
countriesCommercial loans, up until the 1980s, were the largest source of foreign
investment throughout developing countries and emerging markets.
 Office flow - Official flows is a general term that refers to different forms of
developmental assistance that developed or developing nations are given by a domestic
country.

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 Foreign direct investment in India

Foreign direct investment (FDI) is international capital flows in which a firm in one country
creates or expands a subsidiary in another. It involves not only a transfer of resource but also the
acquisition of control. Since the 1990s, FDI has been a source of economic growth for India,
believing that besides needed capital, FDI brings in several benefits. The most important benefit
for a developing country like India is that FDI could create more employment. In addition,
technology transfer is another benefit for the host countries. When the foreign factories are set up
in their countries, they will expose to higher technology production and efficiency in
management. So in future, these companies become able to produce goods and
Services as competitive as foreigners do. Nevertheless, insufficient funds for investment are the
main reason to seek FDI. Usually many less-developed countries lack funds for investment, so
FDI proves to be an important source of funds for them. Foreign direct Investment is one of the
most prominent and striking feature of today’s globalised world. In the current globalised world
there is exponential growth of FDI in both developed and developing countries. In the last two
decades the pace of FDI flows are rising faster than almost all other indicators of economic
activity worldwide. Developing countries, in particular, considered FDI as the safest type of
external finance as it not only supplement domestic savings, foreign reserves but promotes
growth even more through spill over of technology, skills, increased innovative capacity, and
domestic competition. Nowadays, FDI has become an instrument of international economic
Integration. Located in South Asia, India is the 7th largest, and the 2 nd most populated country in
the world. India has long been known for the diversity of its culture, for the inclusiveness
Of its people and for the convergence of geography. Today, the world’s largest democracy has
come to the forefront as a global resource for industry in manufacturing and services.
Its pool of technical skills, its base of English – speaking populace with an increasing
Disposable income and its burgeoning market has all amalgamated to enable India to
Emerge as a viable partner to global industry. Recently, investment opportunities in India are at
its peak. India’s next step for accelerating the Indian Growth is only to make the foreign direct
Investment a top priority. As India offers only a hesitant welcome to FDI. It seeks investment in
several industries, including manufacturing, construction, telecommunications and financial

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services, but was hesitant to allow FDI in multi-brand retail. Fortunately India approved FDI in
multi brand retail on 7th of December, 2012. The regulatory bodies allow only a minority
Investment through FDI due to the fear of losing domestic control over management of these
projects For example; FDI in insurance companies is permitted up to 49% with restrictions on
voting rights to ensure that management control of an insurance firm doesn't shift to a foreign
entity. But if we critically analyse the situation then we can say that concern of loss of
management control is of much less importance compared to sacrifice of economic growth.
Considering the potential of FDI to spur growth, India's ambivalence toward FDI is completely
misplaced. If India wants to accelerate growth, it is imperative that the country attracts FDI in
large, really large amounts. Growth results from domestic investment from savings, from
productivity improvements and from foreign investments. Countries like China that have grown
rapidly in recent decades have taken advantage of all three sources of economic growth. India,
on the other hand, has tried to achieve growth without much FDI. However, India's approach to
growth is like bringing a knife to a gunfight: it's destined to fail relative to other countries'
growth strategies, which take advantage of FDI. To transcend from 5-7% growth to 10-12%
growth, FDI is essential.

History of foreign direct investment in India

The economic liberalisation in India refers to ongoing economic reforms in India that started on
24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were
made to liberalize economy in 1966 and 1985. The first attempt was reversed in 1967.
Thereafter, a stronger version of socialism was adopted. Second major attempt was in 1985 by
Prime Minister Rajiv Gandhi. The process came to a halt in 1987, though 1966 style reversal did
not take place. In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of
gold to Union Bank of Switzerland and 47 tons to Bank of England as part of a bailout deal with
the International Monetary Fund (IMF). In addition, the IMF required India to undertake a series
of structural economic reforms. As a result of this requirement, the government of P. V.
Narasimha Rao and his finance minister Manmohan Singh breakthrough reforms, although they
did not implement many of the reforms the IMF wanted. The new neo-liberal policies included
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opening for international trade and investment, deregulation, initiation of privatization, tax
reforms, and inflation-controlling measures. The overall direction of liberalisation has since
remained the same, irrespective of the ruling party, although no party has yet tried to take on
powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming
labour laws and reducing agricultural subsidies.Thus, unlike the reforms of 1966 and 1985 that
were carried out by the majority Congress governments, the reforms of 1991 carried out by a
minority government proved sustainable.
Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA),
driven by then finance minister Manmohan Singh. As Singh subsequently became the prime
minister, this has been one of his top political problems, even in the current times. India
disallowed overseas corporate bodies (OCB) to invest in India.

Starting from a baseline of less than $1 billion in 1990, a 2012 UNCTAD survey projected India
as the second most important FDI destination (after China) for transnational corporations during
2010–2012. As per the data, the sectors that attracted higher inflows were services,
telecommunication, construction activities and computer software and hardware. Mauritius,
Singapore, US and UK were among the leading sources of FDI. Based on UNCTAD data FDI
flows were $10.4 billion, a drop of 43% from the first half of the last year.

FDI inflow routes

An Indian company may receive Foreign Direct Investment under the two routes as given under:
1. Automatic Route: FDI in sectors /activities to the extent permitted under the automatic route
does not require any prior approval either of the Government or the Reserve Bank of India.
2. Government Route: FDI in activities not covered under the automatic route requires prior
approval of the Government which are considered by the Foreign Investment Promotion Board
(FIPB), Department of Economic Affairs, and Ministry of Finance.

FDI POLICY FRAMEWORK IN INDIA

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Policy regime is one of the key factors driving investment flows to a country. Apart from
underlying overall fundamentals, ability of a nation to attract foreign investment essentially
depends upon its policy regime - whether it promotes or restrains the foreign investment flows.
This section undertakes a review of India’s FDI policy framework. There has been a sea change
in India’s approach to foreign investment from the early 1990s when it began structural
economic reforms about almost all the sectors of the economy.
a) Pre-Liberalisation Period: Historically, India had followed an extremely careful and
selective approach while formulating FDI policy in view of the governance of „import-
substitution strategy‟ of industrialisation. The regulatory framework was consolidated through
the enactment of Foreign Exchange Regulation Act (FERA), 1973 wherein foreign equity
holding in a joint venture was allowed only up to 40 per cent. Subsequently, various exemptions
were extended to foreign companies engaged in export oriented businesses and high technology
and high priority areas including allowing equity holdings of over 40 per cent. Moreover,
drawing from successes of other country experiences in Asia, Government not only established
special economic zones (SEZs) but also designed liberal policy and provided incentives for
promoting FDI in these zones with a view to promote exports.
The announcements of Industrial Policy (1980 and 1982) and Technology Policy (1983)
provided for a liberal attitude towards foreign investments in terms of changes in policy
directions. The policy was characterised by de-licensing of some of the industrial rules and
promotion of Indian manufacturing exports as well as emphasising on modernisation of
industries through liberalised imports of capital goods and technology. This was supported by
trade liberalisation measures in the form of tariff reduction and shifting of large number of
itemsfrom import licensing to Open General Licensing (OGL).
b) Post-Liberalisation Period:
A major shift occurred when India embarked upon economic liberalisation and reforms program
in 1991 aiming to raise its growth potential and integrating with the world economy. Industrial
policy reforms slowly but surely removed restrictions on investment projects and business
expansion on the one hand and allowed increased access to foreign technology and funding on
the other. A series of measures that were directed towards liberalizing foreign investment
included

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1) Introduction of dual route of approval of FDI–RBI‟s automatic route and Government’s
approval (SIA/FIPB) route.
2) Automatic permission for technology agreements in high priority industries and removal of
restriction of FDI in low technology areas as well as liberalisation of technology imports.
3) Permission to Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest
up to 100 per cent in high priorities sectors.
4) Hike in the foreign equity participation limits to 51 per cent for existing companies and
liberalisation of the use of foreign “brands name”.
5) Signing the Convention of Multilateral Investment Guarantee Agency (MIGA) for protection
of foreign Investments.
These efforts were boosted by the enactment of Foreign Exchange Management Act (FEMA),
1999 [that replaced the Foreign Exchange Regulation Act (FERA), 1973] which was less
stringent. In 1997, Indian Government allowed 100% FDI in cash and carry wholesale and FDI
in single brand retailing was allowed 51% in June, 2006. After a long debate, further amendment
was made in December, 2012 which led FDI to 100% in single brand retailing and 51% in
multiple brand retailing.

CURRENT STATUS OF FDI IN INDIA RETAIL

SECTOR:-

As of 2015, the Government of India allowed FDI in single and multi brand retailing along with
the following conditions:-

1. Up to 100% FDI in single brand retail trading.

a) By only one non-resident entity whether owner or the brand or otherwise.
b) 30% domestic sourcing requirement eased to preferable sourcing rather than compulsory.
c) Further clarification on FDI companies that cannot engage in B2C e-commerce.
d) Products to be sold should be of a “single brand”. Product should be sold under the same
brand internationally.

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 e) “Single brand” product retailing would cover only products, which are branded during
manufacturing.

2. Up to 51% FDI in multi brand retail trading.

a) At least 100 million US$ must be invested into Indian company.
b) At least 50% of the total FDI is to be invested in back end infrastructure within 3 years.
c) At least 30% of the value of procurement of processed product shall be sourced from
Indian small industry.
d) Fresh agriculture produce is permitted to be sold unbranded.
e) Indian states have been given the discretion to accept of refuse the implementation of
FDI.
f) Retail outlets can be set up in cities having population of at least 1 million.
g) Application needs to be approved by two levels at Department of Industrial Policy and
Promotion

CURRENT STATUS OF FDI IN INDIA SERVICE

SECTOR:-

FDI plays a major role in the dynamic growth of the service sector. The service sector in India
has tremendous growth potential and as a result it attracts huge FDI.

1. The Computer Software and Hardware enjoy the permission of 100% FDI under automatic
route.
2. The limit of FDI in Telecom sector was increased from 49% to 74%. FDI up to 49% is
permissible under automatic route but FDI in the licensee company/Indian promoters
including their holding companies shall require approval of FIPB.

PROBLEMS FOR LOW FDI FLOW TO INDIA

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India, the largest democratic country with the second largest population in the world, with rule of
law and a highly educated English speaking work force, the country is considered as a safe haven
for foreign investors.
Yet, India seems to be suffering from a host of self-imposed restrictions and problems regarding
opening its markets completely too global investors by implementing full scale economic
reforms. Some of the major impediments for India’s poor performance in the area of FDI are:
political instability, poor infrastructure, confusing tax and tariff policies, Draconian labour laws,
well entrenched corruption and governmental regulations.

1. Lack of adequate infrastructure: It is cited as a major hurdle for FDI inflows into
India. This bottleneck in the form of poor infrastructure discourages foreign investors in
investing in India. India’s age old and biggest infrastructure problem is the supply of
electricity. Power cuts are considered as a common problem and many industries are
forced to close their business.

2. Stringent labor laws: Large firms in India are not allowed to retrench or layoff any
workers, or close down the unit without the permission of the state government. These
laws protect the workers and thwart legitimate attempts to restructure business. To
retrench unnecessary workers, firms require approval from both employees and state
governments-approval that is rarely given. Further, Trade Unions extort huge sums from
companies through over-generous voluntary retirement schemes.

3. Corruption: Corruption is found in nearly every public service, from defense to

distribution of subsidized food to the poor people, to the generation and transmission of
electric power. The combination of legal hurdles, lack of institutional reforms,
bureaucratic decision-making and the allegations of corruption at the top have turned
foreign investors away from India.
4. Limited scale of export processing zones: India’s export processing zones have lacked
dynamism because of several reasons, such as their relatively limited scale; the
Government’s general ambivalence about attracting FDI; the unclear and changing
incentive packages attached to the zones; and the power of the central government in the

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 regulation of the zones. India which established its first Export Processing Zone (EPZ) in
1965 has failed to develop the zones when compared to China which took initiative for
establishment only in 1980.

5. Lack of decision making authority with the state governments: The reform process of
liberalizing the economy is concentrated mainly in the Centre and the State Governments
are not given much power. In most key infrastructure areas, the central government
remains in control. Brazil, China, and Russia are examples where regional governments
take the lead in pushing reforms and prompting further actions by the central government.

6. Indecisive government and political instability: There were too many anomalies on the
government side during past two decades and they are still affecting the direct inflow of
FDI in India such as mismanagement and oppression by the different company, which
affect the image of the country and also deject the prospective investor, who is very much
conscious about safety and constant return on their investment.

DETERMINANTS OF FDI
The determinant varies from one country to another due their unique characteristics and
opportunities for the potential investors. In specific the determinants of FDI in India are:

1. Stable policies: India stable economic and socio policies have attracted investors across
border. Investors prefer countries which stable economic policies. If the government
makes changes in policies which will have effect on the business. The business requires a
lot of funds to be deployed and any change in policy against the investor will have a
negative effect

2. Economic factors: Different economic factors encourage inward FDI. These include
interest loans, tax breaks, grants, subsidies and the removal of restrictions and limitation.
The government of India has given many tax exemption and subsidies to the foreign
investors who would help in developing the economy.

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 3. Cheap and labour: There is abundant labour available in India in terms of skilled and
unskilled human resources. Foreign investors will to take advantage of the difference in
the cost of labour as we have cheap and skilled labours. Example: Foreign firms have
invested in BPO’s in India which require skilled labour and we have been providing the
same.

4. Basic infrastructure: India though is a developing country, it has developed special

economic zone where there have focused to build required infrastructure such as roads,
effective transportation and registered carrier departure worldwide, Information and
communication network/technology, powers, financial institutions, and legal system and
other basic amenities which are must for the success of the business. A sound legal
system and modern infrastructure supporting an efficient distribution of goods and
services in the host country

5. Unexplored markets: In India there is large scope for the investors because there is a
large section of markets have not explored or unutilized. In India there is enormous
potential customer market with large middle class income group who would be target
group for new markets. Example: BPO was one sector where the investors had large
scope exploring the markets where the service was provided with just a call, with almost
customer satisfaction.

6. Availability of natural resources: As we that India has large volume of natural

resources such as coal, iron ore, Natural gas etc. If natural resources are available they
can be used in production process or for extraction of mines by the foreign investors.

NEED FOR FDI IN INDIA

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As India is a developing country, capital has been one of the scare resources that are usually
required for economic development. Capital is limited and there are many issues such as Health,
poverty, employment, education, research and development, technology obsolesce, global
competition. The flow of FDI in India from across the world will help in acquiring the funds at
cheaper cost, better technology, employment generation, and upgraded technology transfer,
scope for more trade, linkages and spillovers to domestic firms. The following arguments are
advanced in favour of foreign capital.

1) Sustaining a high level of investment: As all the under-developed and the developing
countries want to industrialize and develop themselves, therefore it becomes necessary to raise
the level to investment substantially. Due to poverty and low GDP the saving are low. Therefore
there is aneed to fill the gap between income and savings through foreign direct investments.

2) Technological gap: In Indian scenario we need technical assistance from foreign source for
provision if expert services, training of Indian personnel and educational, research and training
institutions in the industry. It only comes through private foreign investment or foreign
collaborations.

3) Exploitation of natural resources: In India we have abundant natural resources such as coal,
iron and steel but to extract the resources we require foreign collaboration.

4) Understanding the initial risk: In developing countries as capital is a scare resource, the risk
of investments in new ventures or projects for industrialization is high. Therefore foreign capital
helps in these investments which require high risk.

5) Development of basic economic infrastructure: In the recent years foreign financial

institutions and government of advanced countries have made substantial capital available to the
under developed countries. FDI will help in developing the infrastructure by establishing firm’s
different parts of the country.
There are special economic zones which have been developed by government for improvising
the industrial growth.

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6) Improvement in the balance of payments position: The inflow FDI will help in improving
the balance of payment. Firms which feel that the goods produced in India will have a low cost,
will produce the goods and export the same to other country. This helps in increasing the exports.

7) Foreign firm’s helps in increasing the competition: Foreign firms have always come up
with better technology, process, and innovations comparing with the domestic firms. They
develop a completion in which the domestic firms will perform better it survive in the market

FDI EQUITY INFLOWS (MONTH - WISE)

DURING THE CALENDAR YEAR 2016

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 Calendar year 2016 Amount of FDI Equity inflows Amount of FDI Equity inflows
(Jan. – dec.) (In Rs. Crore) (in US$ mn)
January 2016 33,461 4,975
February 2016 21,268 3,117
March 2016 16,530 2,446
April 2016 22,345 3,362
May 2016 13,271 1,983
June 2016 15,111 2,245
July 2016 27,430 4,,081
August 2016 32,150 4,803
September 2016 34,366 5,149
Year 2016 (up to sept 215,932 32,183
2016)
Year 2015 (up to sept. 168,192 26,517
2015)
%age growth over last (+) 28% (+)21%
year
Chart Title
40,000
35,000
30,000
25,000
Axis Title20,000
15,000
10,000
5,000
0
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16

SHARE OF TOP INVESTING COUNTRIES FDI

EQUITY INFLOWS
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 %age to total inflows in terms of US$
CYPRUS FRANCE UAE
3% 2% 1%
GERMANY
3%
NETHERLAND
6% MAU-
U.S.A RITIUS
6% 33%

JAPAN
8% U.k
8%

SINGAPOREN
16%

SECTORS ATTRACTING HIGHEST FDI EQUITY

INFLOWS

%age to total inflows in terms of US$

HOTEL & TOURISM
POWER 3%
4%
CHEMICALS (OTHER THAN
FERTILIZERS)
4%
TRADING SERVICES
4% SECTOR
18%

DRUGS & PHARMACEUTICALS

5%
CONSTRUCTION DEVELOP-
AUTOMOBILE INDUSTRY MENT: TOWNSHIP, HOUSING,
5% BUILT-UP, INFRASTRUCTURE
8%
TELECOMMUNICATIONS COMPUTER SOFTWARE &
7% HARDWARE
7%

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 DIPP’s - FINANCIAL YEAR - WISE FDI EQUITY
INFLOWS

S.no Financial year (April – march) Amount of FDI Amount of FDI %age growth over
inflow in Rs. inflow in US$ mn previous year (in
Crores term of US $)
1 2000-01 10,733 2,463 -
2 2001-02 18,654 4,065 (+)65%
3 2002-03 12,871 2,705 (-)33%
4 2003-04 10,064 2,188 (-)19
5 2004-05 14,653 3,219 (+)47
6 2005-06 24,584 5,540 (+)72
7 2006-07 56,390 12,492 (+)125
8 2007-08 98,642 24,575 (+)97
9 2008-09 142,829 31,396 (+)28
10 2009-10 123,120 25,834 (-)18
11 2010-11 97,320 21,383 (-)17
12 2011-12 165,146 35,121 (+)64
13 2012-13 121,907 22,423 (-)36
14 2013-14 147,518 24,299 (+)8
15 2014-15 189,107 30,931 (+)27
16 2015-16 262,322 40,001 (+)29
17 2016-17 144,674 21,624
CUMULATIVE TOTAL 1,640,533 310,258 -
(from April, 2000 to
September,2016)

%age growth over previous year (in term of

US $)
140
120 125
100 97
80
65 72
60 64
40 47
20
28 27 29
8
0
2000 2001 2002 2003-192004 2005 2006 2007 2008 2009-182010-172011 2012 2013 2014 2015
-20 -01 -02 -03 -04 -05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16
-40 -33 -36
-60

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 Top 5 FDI inflows regions in India

%age to total inflows in terms of US$

AHMEDABAD
4%
BANGALORE
7%

CHENNAI MUMBAI
7% 30%

NEW DELHI
21%

SUGGESTIONS FOR INCREASED FLOW OF

FDI INTO THE COUNTRY

1. Flexible labour laws needed: China gets maximum FDI in the manufacturing sector,
which has helped the country become the manufacturing hub of the world. In India the
manufacturing sector can grow if infrastructure facilities are improved and labour
reforms take place. The country should take initiatives to adopt more flexible labour
laws.

2. Relook at sectoral caps: Though the Government has hiked the sectoral cap for FDI
over the years, it is time to revisit issues pertaining to limits in such sectors as coal
mining, insurance, real estate, and retail trade, apart from the small-scale sector.
Government should allow more investment into the country under automatic route.
Reforms like bringing more sectors under the automatic route, increasing the FDI cap and

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 simplifying the procedural delays has to be initiated. There is need to improve SEZs in
terms of their size, road and port connectivity, assured power supply and decentralized
decision-making.

3. Geographical disparities of FDI should be removed: The issues of geographical

disparities of FDI in India need to address on priority. Many states are making serious
efforts to simplify regulations for setting up and operating the industrial units. However,
efforts by many state governments are still not encouraging. Even the state like West
Bengal which was once called Manchester of India attracts only 1% of FDI inflow in the
country. West Bengal, Bihar, Jharkhand, Chhattisgarh are endowed with rich minerals
but due to lack of proper initiatives by governments of these states, they fail to attract
FDI.

4. Promote Greenfield projects: India’s volume of FDI has increased largely due to
Merger and Acquisitions (M&As) rather than large Greenfields projects. M&A’s not
necessarily imply infusion of new capital into a country if it is through reinvested
earnings and intra company loans. Business friendly environment must be created on
priority to attract large Greenfields projects. Regulations should be simplified so that
realization ratio is improved (Percentage of FDI approvals to actual flows). To maximize
the benefits of FDI persistently, India should also focus on developing human capital and
technology.

5. Develop debt market: India has a well developed equity market but does not have a well
developed debt market. Steps should be taken to improve the depth and liquidity of debt
market as many companies may prefer leveraged investment rather than investing their
own cash. Therefore it is said that countries with well-developed financial markets tend
to benefits significantly from FDI inflows.

6. Education sector should be opened to FDI: India has a huge pool of working
population. However, due to poor quality primary education and higher education, there
is still an acute shortage of talent. FDI in Education Sector is lesser than one percent. By

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 giving the status of primary and higher education in the country, FDI in this sector must
be encouraged. However, appropriate measure must be taken to ensure quality education.
The issues of commercialization of education, regional gap and structural gap have to be
addressed on priority.

7. Strengthen research and development in the country: India should consciously work
towards attracting greater FDI into R&D as a means of strengthening the country’s
technological prowess and competitiveness.

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 Conclusion
FDI in India has a significant role in the economic growth and development of India. FDI in
India to various sectors can attain sustained economic growth and development through creation
of jobs, expansion of existing manufacturing industries. The inflow of FDI in service sectors and
construction and development sector, from 2000 to September, 2016 attained substantial
sustained economic growth and development through creation of jobs in India.
Computer, Software & Hardware and Drugs & Pharmaceuticals sector were the other sectors to
which attention was shown by Foreign Direct Investors (FDI). The other sectors in Indian
economy the Foreign Direct Investors interest was, in fact has been quite poor.

FDI has helped to raise the output, productivity and employment in some sectors especially in
service sector. Indian service sector is generating the proper employment options for skilled
worker with high perks. On the other side banking and insurance sector help in providing the
strength to the Indian economic condition and develop the foreign exchange system in country.
So, we can conclude that FDI is always helps to create employment in the country and also
support the small scale industries also and helps country to put an impression on the world wide
level through liberalization and globalization.

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 Bibliography
Website

 www.google.co.in
 www.wikipedia.com/india
 www.dipp.nic.in/English
 www.wikipedia.com

Data sheet

 Fact sheet on Foreign direct investment 2000 – 2016

(Up to September 2016)

Reports

 An analytical study of FDI :- International Journal of Scientific and Research

Publications, Volume 5, Issue 10
 Annual report 2015-16 :- Government of India Ministry of Commerce and Industry
Department of Industrial Policy & Promotion

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